US Dollar Holds Firm as Markets Eye Middle East Ceasefire and Key Data
Market Reactions and Currency Movements Amid Geopolitical Uncertainty
By Satoshi Sugiyama
Middle East Ceasefire and Its Impact on the Dollar
TOKYO, June 2 (Reuters) - The U.S. dollar steadied on Tuesday as markets took a wait-and-see approach to Middle East peace talks, with Lebanon announcing a limited ceasefire between Hezbollah and Israel, although broader geopolitical uncertainties kept traders on edge.
Investors have treated any progress toward ending the Iran conflict with caution, given the fragility of a U.S.–Iran ceasefire struck in early April.
The dollar index, which measures the currency against six peers, eased from earlier gains after the Lebanon announcement on Monday. While the agreement signalled a degree of de-escalation, it remains limited against the backdrop of a wider regional conflict that has disrupted oil flows through the Strait of Hormuz.
Analyst Insights on Ceasefire Developments
"We expect the U.S. and Iran to agree to gradually re-open the Strait of Hormuz and a 60-day extension of the ceasefire to negotiate Iran's uranium enrichment sometime this week," Kristina Clifton, a senior currency strategist at the Commonwealth Bank of Australia, wrote in a note.
"Good news about the war ending will weigh on the USD because it is a safe haven currency."
Currency Performance and Market Sentiment
The dollar index was flat at 99.17, while the euro was 0.03% higher at $1.1634 and sterling gained 0.07% to $1.346.
The greenback had rallied at the onset of the conflict, which began on February 28, buoyed by safe-haven demand and the U.S. economy's relatively limited exposure to energy-driven inflation. However, it has given back some of those gains due to uncertainty surrounding the conflict's trajectory.
Japanese Yen and Central Bank Responses
In Japan, Finance Minister Satsuki Katayama said on Tuesday the authorities stood ready to respond in the currency market as needed and refrained from commenting on recent exchange-rate moves.
The Japanese yen was 0.02% lower against the greenback at 159.66 per dollar following Katayama's remarks, with the 160 level widely seen by markets as a trigger for intervention.
Potential for Market Intervention
"If dollar/yen breaks above 160, the risk of surpassing the April 30 high would increase markedly, raising the likelihood of stronger verbal warnings and a renewed round of rate checks or actual intervention," said Mizuho Securities chief currency strategist Masafumi Yamamoto.
Markets are also anxiously awaiting a speech by Bank of Japan Governor Kazuo Ueda on Wednesday for possible signals as to whether the central bank will proceed with a rate increase the following week.
Upcoming Economic Data and Policy Expectations
Later in the day, the U.S. Labor Department will release job openings data ahead of Friday's closely watched monthly employment report, while the euro zone's May consumer price index will also be announced.
Markets are betting the U.S. central bank's next move will be to raise its benchmark interest rate, compared with expectations for a cut before the start of the Iran war, given rising energy prices and the impact they will have on inflation.
US Employment Report and Market Outlook
The release on Friday of the monthly U.S. employment report could help sway the Fed's policy path in the near term. The data are expected to show a gain of 85,000 jobs in May and no change in the current 4.3% unemployment rate, according to a Reuters poll of economists.
Other Currency and Crypto Market Moves
The Australian dollar added 0.1% to $0.7162 versus the greenback, while New Zealand's kiwi gained 0.07% to $0.5933.
In cryptocurrencies, bitcoin fell 0.13% to $71,277.59. Ethereum declined 0.04% to $2,001.94.
(Reporting by Satoshi Sugiyama;Editing by Shri Navaratnam)
